ACCTN101: Accounting for Management Makeup Test Solution - 20A

This document presents a comprehensive solution to an ACCTN101 Accounting for Management makeup test. The solution includes answers to multiple-choice questions, a matching section, and the preparation of financial statements (Income Statement and Balance Sheet) for a sole trader business. The solution provides a detailed breakdown of the accounting concepts, including the application of accrual accounting, and the preparation of the financial statements, including all calculations and classifications, and the application of depreciation. The assignment covers topics such as the accounting equation, qualitative characteristics of accounting information, and the difference between accrual and cash basis accounting.

Name:
I.D.Number:
Tutor’s Name:
Tutorial Day,Time and Room:
Tutorial Group:
ACCTN101-20A Accounting for Management
Makeup test
Time Allowed: 60 minutes
Instructions:
1. Answer all questions in the answer spaces provided in this paper.
2. Allocate the 60 minutes appropriately to each of the questions. Note that ample answer
space has been provided for the questionsin Sections C.
3. Make sure your NAME, I.D. Number, tutor’s name and tutorial day, time and room is
clearly filled in above.
4. Please keep your test paper and any working paper directly in front of you during the test
session. This is important to prevent what might appear to be cheating and copying of
answers by students seated beside you or above you. Any student(s) caught in such a
situation will face disciplinary issues and will not have his/her test paper marked.
STRUCTURE OF THE TEST:
Marks: Marks Gained:
Section A: Multiple Choice Questions 10 marks
Section B: Matching 10 marks
Section C: Financial Statements 30 marks
Total: 50 marks
1

SECTION A:Multiple Choice Questions (10 marks)
For each multiple choice question,CIRCLEclearly the LETTER that best answers the question.If you
change your mind about an answer, make sure that you clearly put a cross (X) through that letter
and that your other answer (letter) is clearly circled. If a question appears to have two answers
then no marks will be awarded for that question.
1. Theacronym ASOBAT stands for:
(a) Accounting Standards Organisation Board Accounting Theory
(b) A Statement of Better Accounting Techniques
(c) A Statement of Basic Accounting Theory
(d) A Standard of Behavioural Accounting Theory
(e) None of the above
2. Which financial statement would the Managing Director of Deena Enterprise Ltd be most
interested in reviewing, if she was trying to evaluate the performance of the business?
(a) Income Statement
(b) Statement of Changes in Equity
(c) Balance Sheet
(d) Cash Flow Statement
(e) None of the above
3. The cost of an asset less its accumulated depreciation is best represented by the term:
(a) operating expense
(b) net assets
(c) technical insolvency
(d) book value
(e) None of the above
4. There are two opposing views about accounting. One view is that accounting is a social
construction of reality and the other view is that:
(a) Accounting makes the world go around in a chaotic manner
(b) Accounting allows for reality to be socially constructed
(c) Accounting reports factually: a reality ‘as it is’
(d) Accounting allows people to get rich faster
(e) None of the above
2

Refer to the Balance Sheet below to answer Questions 5 and 6
Balance Sheet 2019 2020
Current Assets $15,500 $22,500
Non-Current Assets $39,500 $42,500
Total Assets $55,000 $65,000
Less Liabilities $50,000 $68,500
Net Assets $5,000 ($3,500)
Accumulated Funds:
Reserves $33,000 $33,000
Accumulated Losses ($28,000) ($36,500)
Accumulated Funds $5,000 ($3,500)
5. The Balance Sheet of the reporting entity shows that:
(a) the entity is making a profit for the 2019 and 2020 years
(b) the entity has more assets than liabilities in the year 2020
(c) the entity has more liabilities than assets in the year 2020
(d) the entity has a healthy Cash at Bank balance for both years
(e) None of the above
6. The Balance Sheet of the reporting entity shows that:
(a) the entity is in a strong financial position by the year 2020
(b) the entity is technically insolvent in the year 2020
(c) the entity is technically solvent for both financial years
(d) the entity has more assets than liabilities in both financial years
(e) None of the above
7. The following information has been provided for two friends (Jason and Themen) who
want to run a lawn mowing business together:
On 1 July, each partner deposited $2,500 into the business bank account
On 1 July, they bought a Truck for $2,500 cash and Mowing Equipment for $ 500 cash
During July they received Mowing Revenue of $1,450 in cash, and their customers still owed
them $400 at the end of July
During July they spent $300 cash on Petrol, and $135 cash on Repairs. At the end of July
they owed the Recycling Centre $275 for Dumping Costs for their grass clippings.
On 1 July, they paid $750 to insure the Truck for 1 year.
During July they each withdrew $750 in cash, and Jason used the business Eftpos card to buy
a personal dinner for $100
3

Determine the cash balance for the partnership business at the end of the July month.
(a) $6,450
(b) $2,390
(c) $790
(d) $665
(e) None of the above
8. Which one is not the enhancing qualitative characterises:
(a) comparability
(b) verifiability
(c) timeliness
(d) understandability
(e) faithful representation
9. Identify the correct effect on the expanded accounting equation as a result of the
transaction where$1,000 cash was received from a credit sales customer who owed the
business money.
Assets + Expenses = Liabilities + Owner’s Equity + Income
(a) + $1,000 No change No change No change + $1,000
(b) - $1,000 No change - $1,000 No change No change
(c) No change + $1,000 + $1,000 No change No change
(d) + $1,000 - $1,000 No change No change No change
(e) None of the above
10. Rebecca has just recently been advised by her accountant to register her business with a
company structure for her fashion accessory business. With regards to the Accounting
Entity GAAP and Legal Entity issue, what type of liability status will Rebecca’s business
now have if her business takes on a company structure?
(a) limited liability
(b) unlimited liability
(c) negative liability
(d) positive liability
(e) None of the above
4

SECTION B:Matching (10 marks)
MATCH the descriptions on the right with the terms provided on the left by writing in the
appropriate LETTER in the boxes provided beside the numbers.
Answer: No: Term Let
ter:
Description
x e.g. GAAPs x Generally accepted accounting principles
d 1 Ethical investment a an accounting concept that allows an
organisation to spread the expense of its
assets over the estimated useful life of those
assets.
i 2 Conventional financial
reporting
b The information should have predictive
value, confirmatory value or both
f 3 Accounting c All transactions must be expressed into a
monetary equivalent so that it can be
recognised in the financial statements.
h 4 Historic cost accounting d where investors are judging the
environmental, social and financial
performance of a business by requesting
triple bottom line reporting considerations
for their investment decisions
j 5 Balance sheet e net profit for an accounting period is
determined by subtracting expenses
recognised during the period from revenues
recognised in that period.
b 6 Relevant information f the process of identifying, measuring and
communicating economic information to
permit informed judgement and decisions
by users of the information.
c 7 Monetary Concept g In this system, net profit is the excess of
cash inflows (receipts) over cash outflows
(payments).
e 8 Accrual Basis h records the purchase of assets at the
financial value at the time of the transaction.
g 9 Cash Basis i focuses on financial performance and
position measures and because it does not
bring in triple bottom line reporting
a 10 Depreciation j The financial statement that reports the
financial position of the business.
5

SECTION C:Financial Statements (30 marks)
FleckBook Seekers (FBS) is a business located inHamilton. Matthew, the owner started up the
store as a sole trader on 1 July2019. He provides you with the following information for the year
ended 30 June 2020:
On 1 July2019, Matthew deposited his savings into a business bank account to start up
the business.
$48,000
On 1 July 2019, a bank loan (repayable over a 15-year period) was approved to FBS
and was deposited into the business bank account.
$43,500
On 1 July2019, Equipment and Fittings were purchased using cash. The equipment and
fittings were expected to last 6 years with a scrap value of $3,000.
$15,000
On 1 July 2019, Rental Bond for business premises was paid (this bond will be
returned at the end of the five year lease if the premises remain in good condition)
$12,000
On 1 August2019, Matthewinvested his vehicleinto the business to deliver goods to
customers. The vehicle is expected to last 10 years with no scrap value.
$20,000
On 1 September2019, Matthew purchased a new Xbox for his brother. Matthew
purchased these items using funds from the business bank account. The Xbox has
expected life for three years with no residual value
$6,000
On 1 December2019, Matthew purchased a TV on credit for the staff [payment was
due in 2 years]. The computer system is expected to last for 5 years with $1,000 as its
scrap value.
$6,000
Cash collected from customers during the year [the amount includes $18,000 for goods
to be provided next year]
$119,000
Still owing from customers at the end of the year (to be collected next year) $10,000
Cash paid for products to resell in the business $56,000
Owing for products at the end of the year (to be paid next year) $10,000
Cost of unsold products on hand at the end of the year (to be sold next year) $31,000
Operating Expenses paid (includes Wages, Advertising, Phone and Electricity) $41,000
Operating Expenses owing and unpaid for the year ended 30 June 2020 $3,000
Rent of business premises:Monthly rental is paid in advance (13 months have been
paid between 1 July 2019 and 31 July 2020) $16,900
Matthew made cash drawings from the business bank account for his personal
expenses during the year.
$28,000
Bank long-term loan principal repayments were made $2,900
Interest paid on the bank loan (10%) $4,350
On 30 June 2020, Matthew went to Japan for the Rugby World Cup. He paid for the
holiday using personal funds.
$25,000
Matthew arranged a bank overdraft facility for his business $99,000
The Cash at Bank balance at 30 June 2020 was $28,350
Matthewis keen to evaluate how well his business has performed for the first year of operations.
Required:
Using the accrual basis, prepare the following financial statements for Fleck Book Seekers:
(i) Income Statement for the year ended 30June2020 and
(ii) Balance Sheet as at 30 June 2020
(30 marks)
Continued
6

Fleck Book Seekers:Income Statement for the year ended 30 June 2020
Income: $ $ $
Total revenue
Less Cost of Products
Gross Profit
Less Operating Expenses:
Operating Expenses paid (includes Wages, Advertising, Phone
and Electricity) 44000
Rent paid (16900*(12/13) ) 156000
Interest paid 4350
Depreciation 5000
Net Profit
7

Fleck Book Seekers: Balance Sheet as at 30 June 2020
OWNER’S EQUITY: $ $ $
Capital at start 48000
+ Additional Capital 20000
+ Net Profit
- Drawings 28000
Capital at end
THIS IS REPRESENTED BY:
ASSETS:
Current Assets:
Cash at hand 28350
Inventory 31000
Accounts Receivables 10000
Investment Assets
Investment in Rental Bond 12000
Non-Current Assets:
Equipment 15000
Vehicle 20000
Computer 5000
(-)Accumulated Depreciation (5000)
Net value of fixed assets 35000
TOTAL ASSETS:
LESS LIABILITIES
Current Liabilities:
Accounts payable
Unearned revenue 18000
Bank Overdraft 99000
Operating expenses payable 3000
Long-Term Liability:
Outstanding loan (43500-2900) 40600
TOTAL LIABILITIES:
NET ASSETS
Working Paper:
8

Detach this sheet to use for your working.
9

Detach this page
(It will help you to prepare the financial statements without having to flip your pages back and
forth when answering this question.)
SECTION C:Financial Statements (30 marks)
Fleck Book Seekers (FBS) is a business located in Hamilton. Matthew, the owner started up the
store as a sole trader on 1 July2019. He provides you with the following information for the year
ended 30 June 2020:
On 1 July2019, Matthew deposited his savings into a business bank account to start up
the business.
$48,000
On 1 July 2019, a bank loan (repayable over a 15-year period) was approved to FBS
and was deposited into the business bank account.
$43,500
On 1 July2019, Equipment and Fittings were purchased using cash. The equipment and
fittings were expected to last 6 years with a scrap value of $3,000.
$15,000
On 1 July 2019, Rental Bond for business premises was paid (this bond will be
returned at the end of the five year lease if the premises remain in good condition)
$12,000
On 1 August2019, Matthewinvested his vehicleinto the business to deliver goods to
customers. The vehicle is expected to last 10 years with no scrap value.
$20,000
On 1 September 2019, Matthew purchased a new Xbox for his brother. Matthew
purchased these items using funds from the business bank account. The Xbox has
expected life for three years with no residual value
$6,000
On 1 December 2019, Matthew purchased a TV on credit for the staff [payment was
due in 2 years]. The computer system is expected to last for 5 years with $1,000 as its
scrap value.
$6,000
Cash collected from customers during the year [the amount includes $18,000 for goods
to be provided next year]
$119,000
Still owing from customers at the end of the year (to be collected next year) $10,000
Cash paid for products to resell in the business $56,000
Owing for products at the end of the year (to be paid next year) $10,000
Cost of unsold products on hand at the end of the year (to be sold next year) $31,000
Operating Expenses paid (includes Wages, Advertising, Phone and Electricity) $41,000
Operating Expenses owing and unpaid for the year ended 30 June 2020 $3,000
Rent of business premises:Monthly rental is paid in advance (13 months have been
paid between 1 July 2019 and 31 July 2020) $16,900
Matthew made cash drawings from the business bank account for his personal
expenses during the year.
$28,000
Bank long-term loan principal repayments were made $2,900
Interest paid on the bank loan (10%) $4,350
On 30 June 2020, Matthew went to Japan for the Rugby World Cup. He paid for the
holiday using personal funds.
$25,000
Matthew arranged a bank overdraft facility for his business $99,000
The Cash at Bank balance at 30 June 2020 was $28,350
Matthew is keen to evaluate how well his business has performed for the first year of operations.
Required:
Using the accrual basis, prepare the following financial statements for Fleck Book Seekers:
(i) Income Statement for the year ended 30June2020 and
(ii) Balance Sheet as at 30 June 2020
10